For freedom and liberty, low taxes, less government, high social capital, and strong national defense

Wednesday, May 24, 2006

Republican Death Wish

Republican lawmakers, while changing the law to amnesty 12 million illegal residents (who won’t for them), just hiked taxes for Americans working abroad (who will also now not vote for them).

US multinationals depend critically on the Americans they send abroad. It can take years to find trustworthy local talent, and while they’re doing that, multinationals rely on Americans uprooting themselves and their families to strange places. London is full of them, and I’ve yet to encounter one who was less than good – probably only the best volunteer for these high-profile jobs.

Unlike citizens of most other countries working overseas, Americans pay taxes both abroad and at home. Until last week, Section 911 of the U.S. tax code allowed these unofficial ambassadors to exclude up to $80,000 of their foreign earnings from U.S. taxes and provided a tax break on additional compensation, including housing costs, which in places like Hong Kong or Paris or Dubai can make apartments in Manhattan look affordable.

Chuck Grassley, the Iowa Republican who chairs the Senate Finance Committee, slipped a last-minute amendment into the tax bill that President Bush signed into law last week. The changes nudge up expatriates' tax exemption to $82,400 but substantially raise taxes on additional compensation and effectively cap housing benefits. They are also all retroactive to January 1.

The point of this exercise was to "pay for" the bill's other tax relief. Under the static analysis favored by the Joint Tax Committee, the expat effrontery will raise $2.1 billion over the next decade.

The U.S. is one of only a handful of countries that taxes its citizens' incomes regardless of where they reside. And unlike Eritrea and North Korea, other members of this exclusive club, the U.S. actually collects taxes from its nationals abroad. A better idea would be for the U.S. to follow the example of virtually every other developed country and adopt a territorial tax regime that leaves its citizens overseas alone.

Some 4.1 million Americans are living abroad. In an election year when Republicans are down in the polls, they have just offended a constituency they can ill afford to lose.